Budgeting for an HOA includes disclosures to association members, time restrictions, assessment limitations, and more — all necessary to remain compliant with local Minneapolis and Minnesota state Civil Codes. Below, we outline each step of the budgeting process to create a workable and legal budget for your organization.
RowCal also offers online accounting, budgeting, and bookkeeping services for HOAs. Let our experts help you as you develop your budget for the upcoming year.
Gather Your HOA's Budget Information
Your first step in preparing your budget is to gather all financial information within your HOA. The more information you gather before you the budgeting process, the easier and more accurate your budget will be. You can find this information by collecting the following:
● Current reserve study
● Current financial statements
● Projected income statement
● Prior year financial statements
Your monthly financial statements are the basis for establishing your upcoming annual budget. You may want to provide specific information for each statement to reduce the amount of guesswork you may incur while creating the budget.
Highlighted information in the financial statements may include new expenses, unbudgeted expenses, fluctuations in projected costs, or changes in fixed or variable costs throughout the year.
Plan for Radical Changes in Your Expenses
Although your reserve study will account for fluctuations in your expenses, you should also prepare for these variables over the next twelve months. What are examples of expenditures that fluctuate enough to affect your budget?
● Building materials and supplies
● Real estate trends
● Regulator fees and taxes
Know the Minnesota HOA Budget Disclosure Laws
Someone in your organization needs to be an expert on Minnesota HOA law. Otherwise, you may fall into legal traps that could ultimately shut your organization down while holding one or more members legally responsible.
Most legal issues surround transparency and disclosures. To remain in accordance with HOA law, you must distribute the following disclosures to all members of the organization within 30 to 90 days of the next fiscal year:
1. The annual budget report
2. The annual policy statement
The Annual Budget Report must include:
1. An operating budget outlining the estimated revenue and expenses
2. Summary of the association’s reserves
3. Overview of the reserve funding plan
4. A statement regarding outstanding loans with a term of more than one year
5. Summary of the association’s insurance policies
6. Statements about deferred maintenance, levy special arrangements reserve funding, and reserve calculation procedures
Prepare for Surprise Expenses
Unexpected expenses are somewhat of a misnomer considering that they happen frequently. Therefore, you should prepare for these expenses and assume that at least some of them arise. You can utilize your reserve study to determine which maintenance and repairs you may need to perform over the next twelve months.
You can temporarily use reserve funds for operating purposes to address the following expenses:
● Litigation involving all the above
Keep in mind that your association is liable for repairs and maintenance, so budgeting for them and reporting the budget to the members is crucial for your organization to stay financially stable throughout the year. Regular communication with homeowners through meetings and letters will help make significant changes to the budget easier and more successful.
Accounting and Property Management Services
If you want to maintain a strong, workable budget, RowCal can help you every step of the way. We offer online accounting and bookkeeping services for HOAs in Minneapolis, MN.
To find out more about the products and services we provide, call us at 651-233-1307. You can send a message on our contact page.